As we reflect on enterprises’ strategies for this troubled economic climate, people seem to be thinking about the same old "routine" approaches for battening down the hatches and riding this out – i.e. mass layoffs and budget slashes across the board. This may be the case if this recession is longer and deeper than we fear, but in the shorter term, I am seeing many companies taking a different approach when bracing themselves for this forthcoming downturn than many past recessionary experiences.
The Human Capitalist blogs about the Talent Management software business and makes an interesting case for further growth in this industry, which got me thinking about the need for firms to protect their most prized people assets to ride out this this economic turbulence. If firms are buying talent management software, it is further evidence they are putting their talent issues high on the agenda. Why is this?
1) Firms remember well the dotcom bust and 9/11 nightmare, and are preparing themselves for this one well in advance. Many firms are stalling external hires and prioritizing filling vacancies with internal staff. They are hoping to minimize layoffs at all costs;
2) The aftermath of 9/11 instilled a cost-containment mentality into many companies and there is less fat to trim these days in a lot of companies (especially in HR, with that massive wave of HRO deals in 2001-2005);
3) IT and Business Process Outsourcing are increasingly becoming the logical cost-cutting measures with many enterprises focusing on farming out tactical / routine processes and placing increased emphasis on designing retained organizations (see earlier article). Outsourcing evaluation increases firms’ self-awareness and recognition of the people who add value to the business – i.e. those who perform more than simple routine duties that can be done for lower costs by third party providers;
4) The decline in young adult workers is driving increased concern regarding talent shortages – particularly among larger enterprises. Letting talent go now is likely to result is costly re-hiring when we exit this downturn.
Hence, the focus is more directed on developing and retaining talent than ever before. Let’s hope this downturn isn’t so severe that even these talent issues get thrown out of the window.
An Industry Gone Wild on HRM Technology Deployment: HR luminary, Naomi Bloom, is on top form as she gives us a breakdown of the evolution of the Human Resources Management (HRM) software market over the past 4 decades, and discusses the influence of how IT and Business Process Outsourcing has given companies access to delivery models and scarce talent to run HR technology platforms. However, she doubts today’s HRM software vendors will achieve the Holy Grail of a true one-to-many model with SaaS, as they cannot create the "embedded intelligence across HRM processes" and has faith in HR BPO as the preferred deployment and payment model. Well worth a read.
Renewal Strategies for ITO Relationships: TPI’s thought-provoker Peter Allen is on the money discussing options enterprises have when they enter into renewal discussions with their ITO provider. "Incumbent providers should not be retained on the basis of predecessor agreements. A review of the current market conditions – meaning pricing, contract terms, and scope of services – is essential. We’ve observed that some clients can become complacent and trapped by the perception that the transfer of responsibility and institutional knowledge between IT service providers, or repatriation, becomescostly…..The pricing of the existing contract should be compared to the prevailing market for like services in order to gauge the range of anticipated future pricing" I appreciate Peter’s efforts to discuss some of these options for enterprises today so openly on his blog. My view is that enterprises today need to use renegotiation as a great opportunity to get more value (process and technology) from their provider. More on this to follow…
Mexico Sourcing: That Margarita Never Looked Better: Jason Busch on Mexico’s attractiveness as a manufacturing sourcing location for US businesses. "When it comes to the dollars and sense of importing manufactured parts and goods into the US on a total cost basis, the benefits that Mexico presents more than outweigh the risks." Interesting discussion… builds on what we discussed here.
You’re Not Consultants Anymore: Brian Sommer on why consultants have become "order fulfillment specialists". "People love to call themselves consultants even when all they do is show up at the same outsourcing data center and do the same task every single day. Likewise, you are not a consultant if you routinely install the same software package using the same methodology that is sold through a menu of pricing options from which a customer selects. No, you’re not a consultant."
I wanted to introduce a great blog called 360 Degree Vendor Management written by a good friend of mine who facilitates complex RFP development, leads vendor selections, contract negotiations, and manages outsourcing governance processes for a FORTUNE1000 enterprise. She / he obviously cannot share her experiences publicly so chooses to do so under blogsphere anonymity. Respect to that!
Some great pieces which are well worth reading include:
I am delighted to announce that today’s guest post is from none other than Mr John Cleese of Monty Python and Basil Fawlty folklore. I’m afraid Mr Cleese has some rather disturbing news for you Americans. Over to you John….
Dear Citizens of America,
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In view of your failure to elect a competent President and thus to govern yourselves, we hereby give notice of the revocation of your independence, effective immediately.
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Her Sovereign Majesty, Queen Elizabeth II, will resume monarchical duties over all states, commonwealths and other territories (except Kansas, which she does not fancy), as from Monday next.
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Your new prime minister, Gordon Brown, will appoint a governor for America without the need for further elections. Congress and the Senate will be disbanded. A questionnaire may be circulated next year to determine whether any of you noticed.
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To aid in the transition to a British Crown Dependency, the following rules are introduced with immediate effect:
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1. You should look up “revocation” in the Oxford English Dictionary. Then look up “aluminium,” and check the pronunciation guide. You will be amazed at just how wrongly you have been pronouncing it.
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2. The letter ‘U’ will be reinstated in words such as ‘colour’, ‘favour’ and ‘neighbour.’ Likewise, you will learn to spell ‘doughnut’ without skipping half the letters, and the suffix “ize” will be replaced by the suffix “ise.”
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3. You will learn that the suffix ‘burgh’ is pronounced ‘burra’; you may elect to spell Pittsburgh as ‘Pittsberg’ if you find you simply can’t cope with correct pronunciation.
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4. Generally, you will be expected to raise your vocabulary to acceptable levels (look up “vocabulary”). Using the same twenty-seven words interspersed with filler noises such as “like” and “you know” is an unacceptable and inefficient form of communication.
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5. There is no such thing as “US English.” We will let Microsoft know on your behalf. The Microsoft spell-checker will be adjusted to take account of the reinstated letter ‘u’ and the elimination of “-ize.”
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6. You will relearn your original national anthem, “God Save The Queen”,
but only after fully carrying out Task #1 (see above).
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7. July 4th will no longer be celebrated as a holiday. February 25th will be a new national holiday, but to be celebrated only in England. It will be called “Come-Uppance Day.”
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8. You will learn to resolve personal issues without using guns, lawyers or therapists. The fact that you need so many lawyers and therapists shows that you’re not adult enough to be independent. Guns should only be handled by adults. If you’re not adult enough to sort things out without suing someone or speaking to a therapist then you’re not grown up enough to handle a gun.
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9. Therefore, you will no longer be allowed to own or carry anything more dangerous than a vegetable peeler. A permit will be required if you wish to carry a vegetable peeler in public.
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10. All American cars are hereby banned. They are crap and this is for your own good. When we show you German cars, you will understand what we mean.
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11. All intersections will be replaced with roundabouts, and you will start driving on the left with immediate effect. At the same time, you will go metric immediately and without the benefit of conversion tables… Both roundabouts and metrification will help you understand the British sense of humour.
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12. The Former USA will adopt UK prices on petrol (which you have been calling “gasoline”) – roughly $8/US per gallon. Get used to it.
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13. You will learn to make real chips. Those things you call french fries are not real chips, and those things you insist on calling potato chips are properly called “crisps.” Real chips are thick cut, fried in animal fat, and dressed not with catsup but with malt vinegar.
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14. Waiters and waitresses will be trained to be more aggressive with customers.
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15. The cold tasteless stuff you insist on calling beer is not actually beer at all. Henceforth, only proper British Bitter will be referred to as “beer,” and European brews of known and accepted provenance will be referred to as “Lager.” American brands will be referred to as “Near-Frozen Gnat’s Urine,” so that all can be sold without risk of further confusion.
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16. Hollywood will be required occasionally to cast English actors as good guys. Hollywood will also be required to cast English actors as English characters. Watching Andie MacDowell attempt English dialogue in “Four Weddings and a Funeral” was an experience akin to having one’s ear removed with a cheese grater.
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17. You will cease playing American “football.” There is only one kind of proper football; you call it “soccer”. Those of you brave enough, in time, will be allowed to play rugby (which has some similarities to American “football”, but does not involve stopping for a rest every twenty seconds or wearing full kevlar body armour like a bunch of Jessies – English slang for “Big Girls Blouse”).
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18. Further, you will stop playing baseball. It is not reasonable to host an event called the “WorldSeries” for a game which is not played outside of America. Since only 2.1% of you are aware that there is a world beyond your borders, your error is understandable and forgiven.
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19. You must tell us who killed JFK. It’s been driving us mad.
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20. An internal revenue agent (i.e. tax collector) from Her Majesty’s Government will be with you shortly to ensure the acquisition of all monies due, backdated to 1776.
The Guardian put out an excellent report last week entitled "Behind the Great Firewall", which discusses the Internet popularity in China, and the fact that there will shortly be more Chinese online than Americans. The piece does a good job pointing out how much the Web is impacting society, but what concerns me is the fact that the Chinese government is working extremely hard to increase its level of censorship and keep the Chinese Internet-world sectioned off from the rest of the world. The Guardian has since followed up with a further report entitled "China’s New Internet Purge", which discusses how the Chinese government is ramping up its attempts to close down it’s "Black Web" bars. Just last month, there were 868 arrests made of people providing "unhealthy" content. Google reports that the most searched for words in China are related to "money" and "technology", which indicates that this "unhealthy" content probably wasn’t all pornography. People talk a lot about how China will be changed more by the Internet than the Internet will change China, but if the Chinese government manages to keep most Western sites from being accessed, and persists with stepping up attempts to block this "unhealthy" content, then surely there will be a limit to the level with which China can become "changed"? How far could the Chinese government go to restrict the Internet within its borders? And will the Internet really change China to a great extent if their citizen are only interacting amongst themselves across controlled media. If it’s a battle for restricting information online, then surely the player with trillions of dollars will win out?
As we discussed here a few week’s ago, there are some clear challenges with China becoming a dominant force for delivering outsourced, or offshored, knowledge-services for Western businesses. One of the key reasons for the success of India and the Philippines, for example, for delivering outsourced services such as application development, insurance services and accounting services, is the ability for their workers to learn and assimilate with Western business culture. Interaction with Western staff is vital, and so is the ability for offshore workers to research information in the Web. If the Chinese middle-classes are continually blocked from integrating their online culture with the rest of the world, won’t this impact their ability to assimilate, understand Western business culture and deliver knowledge services for customers outside of the Great Firewall? They have proved themselves highly proficient at producing physical products in China at very low cost, and have clear potential to develop their engineering services on a global scale, but the constant attempts to keep China sectioned off from the rest of the world over the Web could substantially hold back the country from delivering knowledge-based business services for Western companies. If their development is stifled through restricted access to information and people outside of China, they could be left performing knowledge tasks that require very limited "business thinking" , for example data-cleansing services.
I am constantly surprised by how many times I get pulled into the "captive versus outsource" debate. I thought this one was settled long ago, but it seems many firms are still trying to go it alone. If you are a well-resourced firm which has a set of processes that need to be kept inhouse, or are core to your business – and you can save substantial costs by moving these processes offshore – then my advice is to maintain a captive center. However, make sure you have the local management expertise to hire the staff you need and develop career plans to retain them. If you are a top tier brand, you stand a good shot at running a successful captive operation, but if you are a lesser-known firm with a small global presence, you will struggle to retain and develop your staff in this intense offshore environment. There are many firms which still persist in funneling low-value administrative processes into their captive centers, where you have to question the business case of doing so. Utkarsh Rai, in his guest post here entitled "offshoring secrets" does an excellent job surmising how challenging and expensive it is to run your own captive operation in India. Utkarsh has spent most of his career managing offshore operations and here are some excerpts (and these are best-practices, not warnings):
Attracting Talent: Providing an excellent work environment, a challenging work and a competitive compensation and benefits package are important in attracting the talent
Cost of operations: For the last three four years the salary raises have been given to India employees in the range of 15-20%. But this does not translate into the payroll cost. The annual payroll cost increase can be around 5% or so, depending upon the type of growth in the headcount.
If your company runs an offshore captive, ask yourself the following questions:
1) Is the work being performed in the captive truly core to our business, or could we move it over to a third party?
2) How much risk are we exposing to our business by transitioning the captive operations over to an outsourcer? Can we work with the outsourcer to manage the transition process to ensure there is a smooth transition of people and operations?
3) By selling off our captive, how much can we save over a 5 year period?
4) What is our option-value in the future if we want to take some of these operations back in-house?
5) How severe is our attrition rate, and how does this impact running costs and quality?
6) Is the captive truly a part of our global organization, or is it really a distant support center that doesn’t play a core role in our day-to-day business operations?
7) How much management time, and how much cost, is spent flying senior executives over to offshore locations to oversee low-value processes such as accounts payable, help deck support etc.?
8) How much experience with offshoring do our firm’s senior executives currently have, or are they learning it by trial and error and substantial cost to our organization?
9) How complex is it to transfer knowledge from our parent operations over to our offshore operations? Wouldn’t it be cleaner and easier to move the work to a third party outsourcer, who will take on the work they are contracted to do?
10) Is it worth keeping our captive, but re-locating it to a more appropriate location? And what are the costs / benefits associated with doing that?
Alternatively, look at the Aviva model, and get a third party to build your captive for you with the future option-value of selling it to a third party. However, with the amount of captives currently operating, my prediction is that the market for selling captives will be pretty much dusted in 2 years… so is this a sensible option?
The outsourcing providers are primed to grow through two channels: (1) buying captives and (2) taking on business from firms with no offshore or shared services support. If you already have an established captive you have a compelling option to investigate over the next 18 months: do you sell it to one of the ambitious outsourcing providers looking to grow their business? If you have a well established captive operation now, you are in a lucky position. The outsourcing firms prefer to acquire captives to grow their businesses, than acquire each other (as discussed here). With a limited number of captives currently up for sale, you will find a handful of outsourcing providers interested in your business – and you could make a tidy windfall from the sale. They will take from it what they need to run your business, and utilize some of the resources to support other clients. They also have the advantage of running your captive virtually by integrating it into their multi-location delivery infrastructure, that can cater for multi-lingual support and a whole variety of IT and business processes that you can’t often manage from a single location. You will also minimize your business risk by having these services run by an experienced provider with a multi-location delivery strategy.
This discussion between Genpact’s European leadership and Michael Jones, editor of Finance Director Europe, raises some compelling arguments in favor of this virtual captive model that Genpact has successfully developed during its recent hyper-growth. Other leading providers, namely Accenture, IBM, HP, ACS, Cap Gemini, Infosys, TCS and Wipro, are also extremely adept at delivering services from their multi-location infrastructures. The other major advantage of selling your existing captive is that transition is far less painful for both buyer and provider. Retaining key staff is often less challenging, as working for a services firm, rather than a captive, can often provide a more compelling challenge for the offshore professional.
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‘ Have you evaluated whether you should go captive, or just sell out altogether?
It’s been one of the best running blog discussions of recent months, where the Human Capitalist – aka Jason Corsello – predicted that Workstream would get acquired by Empagio. Credit also to Mark Stelzner for hitting the spot with this one. This is one of the first times I have seen a whole host of industry experts come together in one "location" to debate who would acquire who – and when it would happen. A great example of blogging leading the media charge on an issue like this. Interesting times we live in…
While we’re off the topic of outsourcing, I’ve been having some great conversations about social networking this week. Jonathan Yarmis has joined AMR Research to lead the analyst charge in studying this space and has some great perspectives on where social networking is headed – look out for his research in the coming months. New social media networking tools like Twitter and Snitter are enabling people to have multiple interactions with their networks where immediate synchronicity isn’t essential. Instant messenger clients, i.e. Skype, Yahoo, MSN, can be intrusive to people who have a heavy work schedule, and these new tools are more adaptable to people lives and work environments. We have to remember, this all really started with good ol’ LinkedIn, which has generated a powerful network of professionals who are connected on the Internet. The big challenge of the Twitters of this world is to get the less tech-savvy people to sign-up (i.e. 98% of the LinkedIn network). LinkedIn kept it relative simple – just copy and paste your resume into a form and you’re away. So while LinkedIn is positively antiquated these days, it is the one tool that has pretty much everyone on it… and has some great features like Q&A where you can pose questions to huge networks of people interested in that topic. It’s a powerful tool when you can get 50 or so people offering opinions and advice on business issues such as offshoring, or IT questions to solve immediate problems.
I’ll leave you with a great LinkedIn debate from over a year ago on Vinnie Mirchandani’s deal architect where I delivered my LinkedIn tips:
a) Avoid inviting people who work for a competitor. If they’re smart they’ll go through your contacts in 5 mins;
b) NEVER let a headhunter in. They’ll irritate the hell out of you trying to connect to anyone senior you know;
c) Don’t accept invitations from people who are either idiots, or very junior. Your contact collection is a prize tool (and you want it to look good when you’re enticing a prized new acquaintance) and you don’t want any rotten apples in there…:
d) If someone invites you, NEVER decline the invitation, just ignore it. If you decline, they will see it on their records. It’s worse than "blocking" someone from your IM and getting caught out. You will have an enemy for life;
e) Avoid technology luddites who never use any cool tech tools. They will call you up and make a huge deal about how to use the damn thing – you’ll be there doing help-desk for hours. Only focus on current LinkedIn users unless it’s someone you need to show off your network to….;
f) Always decline the LinkedIn spammer…you know the types who just go after everyone in the world;
g) Don’t make your network inaccessible to everyone. This just p****s everyone else off and defeats the purpose of the whole thing. It’s a bit like security-enabling your wireless LAN (I’ll save that debate for another time);
g) Avoid sales/BD people who have limited contacts or are not on LinkedIn at all. Any sales person worth his or her salt uses LinkedIn. If they don’t, they suck. If you’re interviewing a salesperson who isn’t on it, don’t hire them;
h) Think twice when being invited from the "company LinkedInner". Those are the folks who only invite people from their own firm ’cause they don’t know anyone in their industry…..;
i) Endorse people – it’s fun and they’ll love you for it.
As we reflect on enterprises’ strategies for this troubled economic climate, people seem to be thinking about the same old "routine" approaches for battening down the hatches and riding this out – i.e. mass layoffs and budget slashes across the board. This may be the case if this recession is longer and deeper than we fear, but in the shorter term, I am seeing many companies taking a different approach when bracing themselves for this forthcoming downturn than many past recessionary experiences.
